Introduction to this report:
2023Q3 initially showed profit elasticity. In the future, additional international classes will drive the recovery of supply and demand, and the company's fleet will match and optimize the time, so a rise in the profit center can be expected. The aircraft order supplement is in line with expectations, without changing fleet deceleration and airspace bottlenecks.
Summary:
Maintain an increase in holdings. 2 023Q3 initially showed profit elasticity. Considering that exchange and oil prices exceeded previous assumptions, net profit for 2023 was lowered to -35 (previously 2.7) billion yuan, maintained the 2024 forecast of 9.5 billion yuan, and increased the 2025 forecast of 10.5 billion yuan. Demand for China's aviation is resilient. The airline's additional aircraft orders will not change the capacity reduction plan. The increase in international flights will drive the recovery of supply and demand, and the profit center can be expected to rise. The performance of the 2024 Spring Festival travel season is expected to catalyze optimistic market expectations and maintain the target price of HK$5.00.
The performance of 2023Q3 surpassed that before the pandemic, and initially showed profit elasticity. The company returned a net profit of 3.6 billion yuan in a single quarter in 2023Q3. It reversed losses in a single quarter for the first time in the past three years, a sharp increase of 50% compared to 2019Q3.
1) Revenue: Compared with 2019Q3, RPK recovered 92%, passenger occupancy rate was 6% lower, estimated passenger revenue increased 13%, revenue increased 4%; 2) Costs: Compared with 2019Q3, ASK recovered 99%, the average price of aviation fuel increased by more than 30%, and operating costs increased 10%. 3) Exchange: The exchange rate of the 2023Q3 RMB against the US dollar is stable, and it is estimated that the exchange loss was reduced by about 1.1 billion yuan after tax compared to 2019Q3.
The profit center is expected to rise more than expected in 2024. It is expected that the increase in international classes in 2024 will drive the recovery of domestic supply and demand, the effects of marketization of ticket prices will be fully demonstrated, and the company's profit center is expected to rise above expectations. 1) ASK: Assuming that fleet turnover has basically returned to before the epidemic, and that the international recovery exceeds 80%.
2) Guest occupancy rate: Assuming that the domestic occupancy rate has basically returned to before the epidemic, the international occupancy rate is slightly lower. 3) Customer reception:
Assuming that the effects of marketization in ticket prices are fully reflected, domestic passenger revenue continues to rise, and international passenger withdrawals fall; 4) Cost: Assuming oil prices are stable, unit fuel withholding costs will continue to fall due to random increases in turnover.
The company is China's largest carrier on Japan-South Korea routes. With the development of an exit mentality and the restoration of overseas security capabilities, if suppressive demand for Japan-Korea routes is released centrally in 2024, the company's performance may exceed expectations.
The aircraft order supplement is in line with expectations and does not change the long-term airspace bottleneck. Recently, the company signed a purchase agreement with COMAC for 100 C919 aircraft, which is scheduled to be delivered in batches in 2024-31. Airlines began to gradually supplement aircraft orders in 2022. The reason behind this is a shortage of existing orders. We believe that the addition of aircraft orders within the 14th Five-Year Plan is not an accident; it is in line with the expectations of the 14th Five-Year Plan, without changing China's airspace bottlenecks and fleet deceleration plans. Under the strategy of building a supercarrier, it is expected that the company will achieve a good match or even optimization of its fleet with the times, which is conducive to long-term profit improvement.
Risk warning. Economic fluctuations, oil price exchange risks, policies, safety incidents, etc.